The US tax authorities may have to repay up to $300m to accounts preparers, after a court ruled that the fees charged for issuing Preparer Tax Identification Numbers (PTIN) required with submissions are illegal
A US district court in the District of Columbia heard a class action brought by a group of accountants challenging regulations brought in by the Internal Revenue Service (IRS) in 2010 and designed to regulate tax preparers. [Adam Steele et al v. United States of America, Case No: 14-cv-1523-RCL].
Prior to 2010 anyone could file a tax return on behalf of someone else, credentialed or not. The regulations established a new ‘registered tax return preparer’ designation, requiring individuals other than lawyers or accredited accounts to pass a competency exam and apply for a PTIN.
In addition, the regulations also required, for the first time, that ‘tax return preparers must obtain and exclusively use the [PTIN] in forms, instructions, or other guidance, rather than a social security number (SSN)’, as the identifying number to be included with the tax return preparer’s signature on a tax return or claim for refund.
This meant that accredited accountants were also required to register, and pay for, a PTIN. Since then, around 1.3 million PTIN fees have been issued and 710,553 people currently have one. The fee was originally some $64 (£50), but was reduced to $50 (£39) in 2016.
In court the accountants argued that the fees were ‘arbitrary and capricious’, and also claimed they were unlawful because Congress did not grant the IRS licensing authority over tax return preparers, so the fees do not confer a ’service or thing of value’.
They stated that nowhere does the government identify the clear and convincing evidence showing that Congress sought to specifically commit discretion to the agency to determine whether a different number should be used so as to completely preclude judicial review.
In its findings, the court agreed that PTINs do not pass muster as a ‘service or thing of value’ under the government’s rationale. The judge said the argument that the registered tax return preparer regulations regarding testing and eligibility requirements and the PTIN regulations are completely separate and distinct ‘is a stretch at best’.
While it is true that they were issued separately and at different times, they are clearly interrelated. The RTRP regulations specifically mention the PTIN requirements and state that PTINs are part of the eligibility requirements for becoming a registered tax return preparer. According, the court found that while the IRS can require the use of PTINs, it cannot charge fees for issuing them.
Immediately after the ruling, the IRS put out a statement saying: ‘On June 1, 2017, the United States District Court for the District of Columbia upheld the IRS’s authority to require the use of a PTIN, but enjoined the IRS from charging a user fee for the issuance and renewal of PTINs. As a result of this order, PTIN registration and renewal is currently suspended.
‘The IRS, working with the Department of Justice, is considering how to proceed. As additional information becomes available, it will be posted on our website.’
Adam Steele et al v. United States of America, Case No: 14-cv-1523-RCL is here.